The increased use of algorithms to write consumer loans has been met with scepticism by rating agency experts who doubt the ability of computers to fully assess credit risk.

Speaking at the Australian Securitisation Forum, Moody's US-based managing director Jim Ahern told the audience algorithms "work until they don't" when it comes to approving loans.

"Having some underwriting standards outside of just the calculator will always be part of our system. Over the years I have seen lot of factors that contribute to error – coding errors that lead to improper errors, fat finger errors or typos anywhere along the chain that can change outcomes."

Algorithms, he said, are only informed by past and recent data and may be unhelpful if there are meaningful changes in the environment.

"Even if you are programming or creating an algorithm it's only going to be as good as you inform it to be," he said.

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The increased use of algorithms or automated credit approval processes has been on the rise, as more tech start-ups seek to improve the customer experience by shortening the time it takes to gain access to a loan.

Cameron Poolman, the chief executive of online lender OnDeck Australia, said algorithms were an important part of the underwriting process as "it enables us to deliver on our key goal, which is convenience and access to capital for our small business customers".

Pay back quickly

"What [customers] are looking for are small loans that they can pay back quickly and looking for access to this capital in three or four days."

OnDeck, which is based in the United States and has a team of programmers, uses its own developed scoring system to provide automated decisions.

"When we find data sources that are predictive we add that into the score. And for some of our customers we build a sub-model for them."

The company has a partnership with accounting software firm MYOB and says it uses access to its data to improve its models.

"We also have humans so all of our decisions are reviewed by humans, and in many times altered."

The rise of alternative lenders such as peer-to-peer platforms and marketplace lenders has become a major talking point among bankers even as they comprise a fraction of overall lending in the economy.

Lack of history

However, some experts have warned that the performance of loans originated outside of traditional banks has not been fully tested.

"This is just another way to originate a loan. You have to ask, how is this loan going to perform?" said Mr Ahern from Moody's.

"The challenge is the lack of history around the performance of that asset through to maturity and through the credit cycle. As you have less information about those cycles you have to look to comparisons and layers of conservatism."

The flaws in the credit rating agency's own models were exposed during the financial crisis of 2008 as it rated hundreds of billions of dollars of structured bonds, which ultimately defaulted at AAA.

Mr Ahern said, the rating agency had rated a securitisation of loans originated by student lender "SoFi" – and had initially assigned a rating of A2 – equivalent to a highly rated company such as Telstra.

But, he says, the performance of the loans had shown to be consistent with broader industry data, leading it to rate the senior notes of more recent transactions from SoFi as AAA.